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New Managers April 2012

Peter Urbani' Statistics
Peter Urbani's quantitative analysis of emerging managers' performance

Performance Drivers of the Opalesque Emanagers Index

This month we examine the performance drivers of the Emerging Managers Index by treating it as if it were a portfolio or fund of funds and performing an attribution analysis on the constituent sub-indices mapped to the Dow Jones Credit Suisse Hedge Fund Strategies.

The results are instructive and give a fairly clear indication as to where the excess performance of the Emanagers Index has come from.

Over the 3.25 year period since Jan 2009 the Emanagers index has delivered a +14.7% compound annual return (CAGR ) versus the +8.91% of the benchmark Dow Jones Credit Suisse Blue Chip Hedge Fund Index.

To the extent that the Index is a semi-passive portfolio whose Strategy Asset Allocation is largely determined by market forces one might expect that there would be a significant Allocation or market timing effect driving returns. However, this is not the case for the Emanagers Index and the allocation effects relative to the benchmark portfolio are in fact -1.74% p.a. This probably reflects the lagged momentum effect of new funds being launched in recently strong performing areas.

In contrast the Selection effect is +4.18% p.a. suggesting a high quality of funds coming into the index and that it is not merely dominated by past winners.

The Emanagers index has significantly higher weightings to Managed Futures ( 30.4% v.s. 16.4), Equity L/S ( 33.9% v.s. 15.9%) and significantly lower weightings in Event Driven ( 3.5% v.s. 21.4%) and Emerging Markets ( 0% ) and Convertible Arbitrage.

 

Emerging Manager Strategy weights versus Benchmark

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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